2012 budget annouced increase in age of eligibility for old age security and guarantee income supplement

Finance Minister Jim Flaherty's 2012 federal budget announced a gradual increase in the age of eligibility for seniors' old age security and guaranteed income supplement benefits. (Adrian Wyld/Canadian Press)

The auditor general says Ottawa's move to increase the age of eligibility for seniors' benefits could end up saving government more than $10 billion a year by the time it's fully implemented.

The move in the 2012 budget gradually increases the age of eligibility for old age security and guaranteed income supplement benefits to 67 from 65 over a six-year period, starting in 2023.

The report noted that when the change was announced the government did not release the estimated cost savings or long-term fiscal impact.

The auditor general estimated that without the changes the cost of would rise from $35.6 billion in 2010-11 — or roughly 2.2 per cent of GDP — to just over $100 billion in 2029-30, or 2.9 per cent of GDP.

The report also called on the government to make its long-term fiscal analyses public, something the department now has agreed to do.

The Finance Department said it will make public long-term analyses for the federal government on an annual basis starting in 2013.

"Analysis that provides a long-term budgetary perspective would help parliamentarians and Canadians better understand the fiscal challenges facing the federal government," auditor general Michael Ferguson said in a statement.

Projections not ready in time for budget

The report noted that the 2007 budget included a commitment to publish a comprehensive analysis, but that none has ever been released, while many OECD countries regularly publish long-term fiscal projections, including the United States which releases 75-year projections.

Ferguson's report also found that while the department regularly prepared long-term fiscal projections on the overall health of the government, they did not include the impact of decisions in the budget until months after it was introduced.

"That is, it did not prepare the projections in time to influence or support budget decisions," the report said.

In response, the Finance Department said it would expand its analysis to provide the minister an assessment of the overall long-term fiscal implications of new budget measures before the budget is made final.

The changes to the OAS and GIS benefits came despite a consultant's report in 2009 commissioned by the department that said there was "no pressing financial or fiscal need to increase pension ages in the foreseeable future."

However, the department's own work found that the OAS spending was growing faster than the economy and was one factor that could cause financial trouble for the government. The analysis also suggested increasing the eligibility could keep older Canadians in the workforce and provide some fiscal flexibility in dealing with an aging population.

Ferguson's report looked at six recent measures and their impact on the long-term fiscal sustainability.

In addition to the OAS changes, the report examined the long-term fiscal impact of pension income splitting, reducing the GST, tax-free savings accounts and the Canada Health Transfer.